Posts Tagged ‘Immigration’

The House recently changed the rules of budget scoring: The Congressional Budget Office and the Joint Committee on Taxation will now account for macroeconomic effects when estimating the budget impacts of major legislation. Here are three things you should know as we await the first official dynamic score.

1. Spending and regulations matter, not just taxes

You might think dynamic scoring is just about taxes. It’s not. Spending and regulatory policies can also move the economy. Take the Affordable Care Act. CBO estimates that the law’s insurance subsidies will reduce labor supply by 1.5 to 2.0 percent from 2017 to 2024, some 2 to 2.5 million full-time equivalent workers. If CBO and JCT do a dynamic score of the House’s latest ACA repeal, this effect will be front and center.

The same goes for immigration reform. In 2013 (and in 2006), CBO and JCT included some macroeconomic effects in their score of comprehensive immigration reform, though they did not do a fully dynamic score. Under today’s rules, reform would show an even bigger boost to the economy and more long-term deficit reduction than the agencies projected in the earlier bills.

2. Dynamic scoring isn’t new

For more than a decade, CBO and JCT have published dynamic analyses using multiple models and a range of assumptions. For example, JCT projected former House Ways & Means Committee chairman Dave Camp’s tax reform plan would boost the size of the economy (not its growth rate) by 0.1 to 1.6 percent over 2014 to 2023. The big step in dynamic scoring will be winnowing such multiple estimates into the single set of projections required for official scores.

Observers understandably worry about how the scorekeepers will do that. For example, what will JCT and CBO do with certain forward-looking models that require assumptions not just about the policy in question but also about policy decisions Congress will make in the future? If the agencies score a tax cut today, do they also have to include future tax increases or spending cuts to pay for it, even if Congress doesn’t specify them? If so, how should the agencies decide what those offsetting policies are? Does the existence of such models undermine dynamic scoring from the start?

Happily, we already have a good sense of what the agencies will do, and no, the existence of such models doesn’t hamstring them. At least twice a year, CBO and JCT construct baseline budget projections under existing law. That law often includes scheduled policy changes, most notably the (in)famous “fiscal cliff” at the end of 2012. CBO and JCT had to include the macro effects of the cliff in their budget baseline at that time, even though they had no idea whether and how Congress might offset those policies further in the future. That’s dynamic scoring in all its glory, just applied to the baseline rather than analyzing new legislation. CBO and JCT didn’t need to assume hypothetical future policies to score the fiscal cliff, and they won’t need to in scoring legislation either.

3. Dynamic scoring won’t live up to the hype, on either side

Some advocates hope that dynamic scoring will usher in a new era of tax cuts and entitlement reforms. Some opponents fear that they are right.

Reality will be more muted. Dynamic scores of tax cuts, for example, will include the pro-growth incentive effects that advocates emphasize, leading to more work and private investment. But they will also account for offsetting effects, such as higher deficits crowding out investment or people working less because their incomes rise. As previous CBO analyses have shown, the net of those effects often reveals less growth than advocates hope. Indeed, don’t be surprised if dynamic scoring sometimes shows tax cuts are more expensive than conventionally estimated; that can easily happen if pro-growth incentives aren’t large enough to offset anti-growth effects.

Detractors also worry that dynamic scoring is an invitation for JCT or CBO to cherry pick model assumptions to favor the majority’s policy goals. Doing so runs against the DNA of both organizations. Even if it didn’t, the discipline of twice-yearly budget baselines discourages cherry picking. Neither agency wants to publish rosy dynamic scenarios that are inconsistent with how they construct their budget baselines. You don’t want to forecast higher GDP when scoring a tax bill enacted in October, and have that GDP disappear in the January baseline.

I am cautiously optimistic about dynamic scoring. Done well, it can help Congress and the public better understand the fiscal effects of major policies. There are still some process issues to resolve, most notably how investments might be handled, but we should welcome the potential for better information.

For more views, see the dynamic scoring forum at TaxVox, the blog of the Tax Policy Center.

Immigration policy poses an unusual challenge for the Congressional Budget Office and the Joint Committee on Taxation. If Congress allows more people into the United States, our population, labor force, and economy will all get bigger. But CBO and JCT usually hold employment, gross domestic product (GDP), and other macroeconomic variables constant when making their budget estimates. In Beltway jargon, CBO and JCT don’t do macro-dynamic scoring.

That non-dynamic approach works well for most legislation CBO and JCT consider, with occasional concerns when large tax or spending proposals might have material macroeconomic impacts.

That approach makes no sense, however, for immigration reforms that would directly increase the population and labor force. Consider, for example, an immigration policy that would boost the U.S. population by 8 million over ten years and add 3.5 million new workers. If CBO and JCT tried to hold population constant in their estimates, they’d have to assume that 8 million existing residents would leave to make room for the newcomers. That makes no sense. If they allowed the population to rise, but kept employment constant, they’d have to assume a 3.5 million increase in unemployment. That makes no sense. And if they allowed employment to expand, but kept GDP constant, they’d have to assume a sharp drop in U.S. productivity and wages. That makes no sense.

Because increased immigration has such a direct economic effect, the only logical thing to do is explicitly score the budget impacts of increased population and employment. And that’s exactly what CBO and JCT intend to do. In a letter to House Budget Committee Chairman Paul Ryan on Thursday, CBO Director Doug Elmendorf explained that the two agencies would follow the same approach they used back in 2006, the last time Congress considered (but did not pass) major immigration reforms.

In scoring the 2006 legislation, JCT estimated how higher employment would boost total wages and thus increase income and payroll taxes, and CBO estimated how a bigger population would boost spending on programs like Medicaid, Food Stamps, and Social Security. They found that the legislation would boost revenues by $66 billion over the 2007-2016 budget window and would boost mandatory spending by $54 billion; various provisions also authorized another $25 billion in discretionary spending subject to future appropriations decisions.

I remember that estimate well since I was then CBO’s acting director. At the time, I thought this was a pretty big deal, doing a dynamic score of a major piece of legislation. I expected some reaction or controversy. Instead, we got crickets. It just wasn’t a big deal. The direct economic effects of expanded immigration—bigger population, bigger work force, more wages—were so straightforward that folks accepted this exception from standard protocol. I hope the same is true this time around.

Note: The approach CBO and JCT will use in scoring immigration legislation is only partially dynamic. It accounts for the direct effects of increased immigration, such as a bigger population and labor force, but not indirect effects such as changing investment. In other words, it follows the standard convention of excluding indirect changes in the macroeconomy; the innovation is accounting for the direct effects. We used the same approach in 2006, analyzing indirect effects in a companion report separate from the official budget score. CBO and JCT will take the same approach this time around.

Economists are often criticized for a worldview that emphasizes, and sometimes encourages, selfishness. In today’s NYT, Tyler Cowen highlights another, less-discussed aspect of that worldview, its deep tradition of egalitarianism:

If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.

A distressingly large portion of the debate in many countries analyzes the effects of higher immigration on domestic citizens alone and seeks to restrict immigration to protect a national culture or existing economic interests. The obvious but too-often-underemphasized reality is that immigration is a significant gain for most people who move to a new country.

Michael Clemens, a senior fellow at the Center for Global Development in Washington, quantified these gains in a 2011 paper, “Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?” He found that unrestricted immigration could create tens of trillions of dollars in economic value, as captured by the migrants themselves in the form of higher wages in their new countries and by those who hire the migrants or consume the products of their labor. For a profession concerned with precision, it is remarkable how infrequently we economists talk about those rather large numbers.

Truly open borders might prove unworkable, especially in countries with welfare states, and kill the goose laying the proverbial golden eggs; in this regard Mr. Clemens’s analysis may require some modification. Still, we should be obsessing over how many of those trillions can actually be realized.

IN any case, there is an overriding moral issue. Imagine that it is your professional duty to report a cost-benefit analysis of liberalizing immigration policy. You wouldn’t dream of producing a study that counted “men only” or “whites only,” at least not without specific, clearly stated reasons for dividing the data.

So why report cost-benefit results only for United States citizens or residents, as is sometimes done in analyses of both international trade and migration? The nation-state is a good practical institution, but it does not provide the final moral delineation of which people count and which do not. So commentators on trade and immigration should stress the cosmopolitan perspective, knowing that the practical imperatives of the nation-state will not be underrepresented in the ensuing debate.

In today’s New York Times, Greg Mankiw offers a nice explanation for why many economists favor immigration:

First, many economists, especially conservative ones, have a libertarian streak. Ever since Adam Smith taught us about the wonders of free markets and the magic of the invisible hand, we have been loath to prohibit mutually advantageous trades between consenting adults. If an American farmer wants to hire a worker to pick fruits and vegetables, the fact that the worker happens to have been born in Mexico does not seem a compelling reason to stop the transaction.

Second, many economists, especially liberal ones, have an egalitarian streak. They follow the philosopher John Rawls’s theory of justice in believing that policy should be particularly attuned to its impact on the least fortunate. When thinking about immigration, there is little doubt that the least fortunate, and the ones with the most at stake in the outcome, are the poor workers who yearn to come to the United States to make a better life for themselves and their families.

Third, economists of all stripes recognize that our own profession has benefited greatly from an influx of talent from abroad.

I’d add a fourth item to Greg’s list: Many economists, both liberal and conservative, have a cosmopolitan streak. They thus place great weight on the wellbeing of foreigners, not just native Americans. From the libertarian side, that means caring about the liberty of the Mexican worker, not just the American farmer. And from the egalitarian side, that means caring about the poor immigrant worker seeking a better life, not just the person who employs them or the resident worker competing for similar work.

Such cosmopolitanism isn’t universal, of course. For example, some economists oppose greater immigration on the egalitarian, but non-cosmopolitan, concern that it would drive down wages for existing U.S. workers. On average, though, that perspective seems less common among economists than among non-economists.

Judging by my Twitter feed, the most captivating story of the day is Jose Antonio Vargas’s account, “My Life as an Undocumented Immigrant.” Writing in the NYT Magazine, Vargas recounts how his mother sent him to the United States when he was 12 and how, in the subsequent years, he built a career as a successful journalist. But he never became a legal resident:

I convinced myself that if I worked enough, if I achieved enough, I would be rewarded with citizenship. I felt I could earn it.

I’ve tried. Over the past 14 years, I’ve graduated from high school and college and built a career as a journalist, interviewing some of the most famous people in the country. On the surface, I’ve created a good life. I’ve lived the American dream.

But I am still an undocumented immigrant. And that means living a different kind of reality. It means going about my day in fear of being found out. It means rarely trusting people, even those closest to me, with who I really am. It means keeping my family photos in a shoebox rather than displaying them on shelves in my home, so friends don’t ask about them. It means reluctantly, even painfully, doing things I know are wrong and unlawful. And it has meant relying on a sort of 21st-century underground railroad of supporters, people who took an interest in my future and took risks for me.

Last year I read about four students who walked from Miami to Washington to lobby for the Dream Act, a nearly decade-old immigration bill that would provide a path to legal permanent residency for young people who have been educated in this country. At the risk of deportation — the Obama administration has deported almost 800,000 people in the last two years — they are speaking out. Their courage has inspired me.

There are believed to be 11 million undocumented immigrants in the United States. We’re not always who you think we are. Some pick your strawberries or care for your children. Some are in high school or college. And some, it turns out, write news articles you might read. I grew up here. This is my home. Yet even though I think of myself as an American and consider America my country, my country doesn’t think of me as one of its own.

What should America do with immigrants like Vargas? Deporting him has got to be wrong answer. In almost all regards, he’s behaved like a model citizen, working hard, contributing to society, and playing by most of the rules. America is better for him being here. But, as his account makes clears, he knowingly and repeatedly misled employers and violated employment and documentation laws. Is there some balance by which he can become a legal resident, with hopes one day of becoming a citizen, yet still bear some penalty for breaking the law?

P.S. Vargas first offered his account to his old employer, the Washington Post. As Paul Farhi recounts, the Post gave the story a careful vetting and decided to drop it because Vargas had withheld some information. Vargas then went to the NYT, which rushed the piece into this week’s NYT Magazine. As Farhi notes:

This gave the story a singular distinction: It may be the first published by the New York Times that was developed, fact-checked and substantially edited by editors at The Washington Post.